DIY Bookkeeping for Small Startup Entrepreneurs

Most small startups can neither afford, nor do they need, a full-time or even a part-time bookkeeper given the size of the business, and the amount of daily business activities during the early stage. If you are one of such small startups, it is important for you as a startup entrepreneur to understand what bookkeeping activities are involved in your business, and learn how to perform many of these activities yourself.

A few preparatory items to take care of before you start doing your own bookkeeping –

  1. Subscribe to an online small business accounting software (QuickBooks, Xero, etc.) and find a local accountant who can help you setup your chart of accounts and beginning account balances, and train you for 3-4 hours on how to use the software for most common bookkeeping activities in your business.
  2. If you are required to run a payroll, outsource it to a local accounting firm. It will cost you between $50 and $100 per pay period if you have less than 10 employees.
  3. Retain a virtual bookkeeper for only 3-4 hours a month to catch and fix your bookkeeping errors, if any, and “clean up” your books at the end of each month.
  4. Read a book on bookkeeping basics if you have time and interest to do so.

Now you are all set to do bookkeeping on your own. Here is a list of most common bookkeeping activities for most small startups, broken down by week, month, quarter, and year.

Daily bookkeeping tasks

  • Check your cash position against the bills coming due in next 30 days
  • Enter customer orders
  • Enter vendor orders

Weekly or bi-weekly bookkeeping tasks

  • Enter customer invoices and vendor bills
  • Enter deposits and payments
  • Enter payables and receivables
  • Enter payroll data received from your accounting firm
  • Deposit Federal payroll taxes and withholdings (if a semi-monthly depositor)
  • Pay any bills due
  • Follow up on any past due receivables
  • Review inventory reports
  • Keep copies of all invoices sent, all cash receipts (cash, check, and credit card deposits), and all cash payments (cash, check, credit card statements, etc.).

Monthly bookkeeping tasks

  • Deposit Federal and state payroll taxes and withholdings (if a monthly depositor)
  • Report and pay any retirement benefits withheld from employee paychecks during the previous month
  • Pay and enter sales tax and other state taxes (monthly filers only)
  • Review A/R and mail reminder invoices as needed
  • Review A/P to find any missing or past due bills to be paid
  • Enter principle and interest on any loan payments
  • Reconcile all bank and credit card accounts. Click Here to learn how to reconcile a bank statement
  • Work with your virtual bookkeeper to “clean up” your books
  • Create monthly P&L and balance sheet statements and compare with budgets and forecasts

Quarterly bookkeeping tasks

  • Pay any balance due on all quarterly payroll reports
  • If FUTA exceeds the threshold for annual filing, pay FUTA tax
  • Reconcile payroll liability accounts against quarterly reports
  • Deposit Federal and State payroll taxes and withholdings (if a quarterly depositor)
  • Pay and enter sales tax and other state taxes (quarterly filers only)
  • Review quarterly P&L and balance sheet statements
  • If you pay estimated taxes, make your quarterly payment

Annual bookkeeping tasks

  • Pay and enter FUTA tax and reconcile all payroll liability accounts for the entire year
  • Pay and enter sales tax and other state taxes (if an annual filer)
  • Verify and update employee withholding and address information
  • Update year-end inventory and capital assets in the books
  • Review status of any owner loan accounts
  • Renew your business registration and licenses, and review your client and vendor agreements
  • Prepare materials for CPA

Since your books were “cleaned up’” each month by your virtual bookkeeper, it will take your CPA less time (hence lower fee) to prepare your year-end financial statements and tax returns.

6 Things to Consider While Selecting a Small Business CPA Firm

For most small businesses, it is more cost-effective to outsource their bookkeeping, payroll, accounting, and tax service needs, to an outside accounting firm than it is to hire the required in-house staff for the same. The key is to find the right accounting firm.

Here are some of the things to consider while selecting a small business CPA firm:

  1. Is the firm specialized in serving small businesses like yours? A CPA firm specialized in serving small businesses is likely to understand and address the challenges unique to small businesses more effectively than a CPA firm that is not. In addition, such a CPA firm is likely to be efficient and agile in serving your needs as its services, processes, and operations are likely to be built just to serve small businesses.
  2. Does the firm have expertise in areas relevant to your needs? Understand your needs first before seeking a solution. For example, if your internal staff handles your accounting and bookkeeping but you need outside help for certain types of taxes, then hire a CPA firm that is expert in those types of taxes, preferably in your industry. If you want to setup a retirement plan for yourself and/or for your employees, hire a CPA firm that is also a financial advisor.
  3. What credentials and licenses in accounting and finance do the firm employees have? Most highly-recognized professional credentials in accounting and finance, such as CPA, CFP, CFA, PFS, EA, etc., have requirements for continuing education and compliance with their standards. This is to ensure that the professional is not only knowledgeable about the subject matter, but also that his/her knowledge is the most up-to-date one. It’s always wise to hire professionals with the highest professional credentials in the field of your needs.
  4. What is the firm’s client callback policy? One of the main reasons to hire a small local CPA firm is the ease of access. Ask whether they have a policy of returning client’s calls within 24 hours and addressing their queries within 72 hours. Also, find out whether they will be available over the weekend for an occasional urgent situation.
  5. Is the firm also skilled in preparing personal tax returns and providing other personal finance services, if needed? Most small businesses are flow-through business entities whereby their business profits and losses flow through their personal tax returns at the year-end. Therefore, as a small business owner, you need a CPA firm that has experts in not only accounting and business taxes but also in personal finances. Such CPA firm applies a holistic view to your finances in devising optimal tax strategies.
  6. Does the firm have a strong referral network for your other professional service needs? For many small businesses, their CPA is their most trusted source for many great referrals. You should be able to count on your CPA for reliable referrals for your other professional service needs such as legal, financing, banking, investment, and insurance. Once you hire the right CPA firm, it should become your primary source for other reliable professionals.

As a small business owner, your CPA should be your most trusted advisor for both your business as well as your personal financial service needs. Do your due diligence while searching for a CPA firm that is right for your needs.